Gifting Money Rules: What Is The Maximum Allowed Gift Without Having To Pay Tax?
Gift Tax Law: What Is Gift Tax?
The US Internal Revenue Code Chapter 12-Subtitle B states that “gift tax” is the gratuitous transfer of property ownership. Section 2501 of the Internal Revenue Code imposes this tax, the responsibility of which typically falls on the shoulders of the donor or the giver of that gift. The exception to this ruling would be if there is some retention of interest involved which has delayed the giving of that gift. Additionally, the donor or giver receives nothing in return for the gift.
For tax purposes, the federal courts define the word gift as the proceeds resulting from “detached and disinterested generosity” therefore, you should be aware that there is a difference between the Federal Gift Tax compared to the IRS treatment of gifts. In other words, where the treatment of gifts for the purposes of US gift tax (oftentimes referred to as the “transfer tax”) is concerned, it should not be confused with how those gifts may be treated for other tax purposes. Where tax laws are concerned, most gifts may be excluded under Section 102 of the Internal Revenue Code.
What Is The Allowable Amount Before Being Taxed?
From an estate tax planning standpoint, many individuals incorporate gifting as a method for reducing tax liabilities based on their estates. There are 2 exemption levels where gift tax is concerned. As of 2009, you could give meaningful and substantial gifts of up to $13,000 in value on an annual basis without incurring any gift tax. If your spouse is involved giving gifts of this same nature, that figure doubles to $26,000. In addition to this, you are not restricted to the number of people who receive gifts from you and the lifetime limit for gifting is $1 million before being taxed.
How To Avoid Gift Taxes
The primary purpose of gifting is to reduce the amount of tax liability that your heirs will incur from your estate when you pass away. Here are a few tips on how to avoid this:
- Give your spouse assets or monetary gifts
- Set your children up with trust funds (irrevocable)
- While you are still living, plan on how you can give enough money to any future heirs to avoid taxation, as well as planning this out accordingly
- Make arrangements for charitable donations to be given after you die
- Hire an income tax attorney or professional to help you
Hiring An Income Tax Attorney
The best time to hire an income tax attorney is for prevention purposes, to avoid getting in trouble with the IRS or facing a tax bill that turns out to be way higher than what you would expect, because you did something without getting all the necessary information.
People are usually reluctant to consult a tax lawyer, but it’s much better to take the advice of a professional and minimize the chances of you making a costly mistake. This is definitely one of the areas where a competent tax attorney can help you save a lot of money.
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